FNBB sees light at the end of the tunnel

At the end of the company results presentation last week, FNB Botswana Chief Executive, Steven Lefentse Bogatsu radiated confidence.

It was surprising to some who attended the results presentation at Masa Hotel, as the bank has just posted a decline in profit after tax of 15 percent. It’s not something to smile about, but it’d seem not for Bogatsu. “The next time we issue a cautionary statement, it will be about positive financial results,” said an upbeat Bogatsu. What is making this former Chief Financial Officer of the same bank bullish while the rest of the market is bearish?The banking industry has transformed in the past few years, especially from the regulation side. Bank of Botswana wants to ensure commercial banks sweat for their profits. The fragile economic climate is also not helping the situation for banks which are known for super profits.

At First Place, the FNBB’s headquarters, it will seem good times are here to roll. According to FNBB top man, the past two years have seen the company re-organising its balance sheet, cutting costs where necessary and improving liquidity to remain afloat in the highly competitive banking industry.

Bogatsu himself was brought back from Swaziland where he was CEO of FNB to steer the ship at the local operation, which is among the ‘big four’ in the country.  He inherited a bank which was posting declining profits.  Liquidity squeeze, which nearly brought the whole industry which is half the size of the country’s economy to its knees, was one of the reasons which contributed to the massive fall in profits.

Two months after being appointed to the current post in April 2015, Bogatsu saw FNBB posting 18 percent drop in profit after taxation to close June 2015 at P591 million. However, after just over a year at the helm, he is confident that they have turned the corner and shareholders must expect more in the coming full year profits. Behind the scenes, the bank which is a unit of FNB South Africa has been working hard behind the scenes to prepare the ground for good times which are set to roll.  The bank is customer centric, which is key for any service business.

“We want to focus more on the customer. We also need to redefine our market segmentation,” said the confident Bogatsu. A modern day bank customer, who is techno-savvy, does not need to spend time in the banking halls. This explains why FNBB has launched a number of online and mobile banking services to address this type of customer. It pays to offer this type of service, as customers are charged a fee to access such. This non-interest fee is what the bank needs to augment revenue from interest income, whose margins are influenced by Bank of Botswana monetary stance.

In the coming months, ‘there will be a lot of collaborations’ between the bank and other service providers. Currently, several service providers have partnered with the bank to have their customers (of service providers) pay through the bank. This is also non-interest income that FNBB continues to chase with unsigned service providers.  In the last couple of months, FNBB, which has a market capitalisation of P7, 8billion, launched a number of products in an attempt to grow revenue from all angles. Products such as Paypal, e-wallet bulk send, Moemedi Insurance and 105 percent property finance have flooded the market. Bogatsu is thrilled that the 105 percent mortgage service has been warmly received by the existing and new customers.Cross selling of the bank’s products has also taken centre stage. Moemedi Insurance is one product that is being cross-sold to the bank’s customers and the industry has warmed up to it.

“These products have been well received. We will be reaping rewards in the coming months,” Bogatsu who was accompanied by his right hand man, Chief Financial Officer, Makgau Dibakwane, said. The above products are likely to pick the lender’s non-interest revenue. This is even more critical for FNBB bottom line especially that rates have gone down and pressure has piled on banks to look for profits away from interest products. Last month, the central bank slashed key lending rate by 50 basis points to 5, 5 percent. At 5, 5 percent, the rate is at a two-decades low. The bank has also focused its attention on revenue diversification. For example, the FNB Connect has grown by 95 percent, online banking, 15 percent and mobile banking at 16 percent.

In the year under review, the BSE listed bank saw its advances jumping by 12 percent, outpacing market growth of 8 percent. “We focused on growth in advances where we have the risk appetite,” chipped in the purse holder, Dibakwane said. Advances to customers closed the period at a whopping P14, 3 billion. All in all, the bank balance sheet closed at P21 billion, a figure which is about half of the country’s 2016/17 budget. However, the bank which is celebrating 25 years of existence in Botswana this year also experienced challenges on impairments. Some of its customers, especially those employed in the mining sector were hard hit, as others lost employment. The mining sector has slashed jobs on the backdrop of reduced demand for its produce, especially from the world’s second biggest economy, China.

Meanwhile, the bank has reported that operating expenses also increased considerably. Dibakwane said, as they invest in infrastructure and human capital, operational costs are bound to go up. The bank is busy revamping some of its branches. The Gaborone industrial branch has been opened after it underwent renovation to give it a state of the art feel. Kanye branch has been relocated to a much more prime plot at an extra cost. However, as the bank exits troubled waters, the industry it is operating within is still facing an uncertain future. Most banks depend on credit for their profit. However, as of June 2016, year on year credit extension averaged 8 percent, reflecting a drop when compared to 13,5 percent the year before. The reason given by Bogatsu for the fall is that businesses are finding limited opportunities that they can access credit to invest in.

The domestic economy is expected to expand by 4, 2 percent this year on the backdrop of steady recovery in the diamond sector, the economy‘s biggest export revenue earner. The FNBB boss is hopeful that the much-publicised Economic Stimulus Programme (ESP) will jumpstart the economy. ESP is a government initiative that is aimed at investing in short to medium term projects that can create the much-needed jobs and diversify the economy.